The Chinese yuan, also known as the renminbi, is already convertible under the current account - the broadest measure of trade in goods and services. However, the capital account, which covers portfolio investment and borrowing, is still closely managed by Beijing because of worries about abrupt capital flows.

The yuan traded within 0.02 per cent of its highest level in 20 years as the People's Bank of China raised the currency's reference rate by the most in two weeks.

The central bank boosted the daily fixing yesterday by 0.06 per cent, the most since December 9, to 6.1161 per US dollar.

The International Monetary Fund is raising its US economic growth forecast as a budget deal in Washington and the Federal Reserve's plan to taper its stimulus ease doubts about the outlook for the world's largest economy, managing director Christine Lagarde said on NBC's Meet the Press on Sunday.

"The yuan will continue with its appreciation trend as better economies in the US and Europe will be favourable for Chinese exports," said Liu Dongliang, a senior analyst at China Merchants Bank. "Yuan trading is likely to be light towards the end of this year."

The yuan traded at 6.0710 per dollar in morning trade in Shanghai, China Foreign Exchange Trade System prices show. The currency reached 6.0703 on December 10, the strongest since the government unified the market and official exchange rates at the end of 1993. It can diverge a maximum 1 per cent from the PBOC's daily fixing.

In Hong Kong's offshore market, the yuan rose 0.04 per cent to 6.0676 per dollar, data shows. Twelve-month non-deliverable forwards climbed 0.02 per cent to 6.1375, a 1.1 per cent discount to the spot rate in Shanghai, according to data.

The offshore yuan might weaken to 6.1225 per dollar and "potentially beyond" following a decline in Chinese equities, Bank of America Corp technical strategist MacNeil Curry wrote in a note.

Local stocks fell for the ninth day on December 20, the longest losing streak in 19 years, as the central bank's targeted fund injections failed to alleviate the worst cash crunch since June.

One-month implied volatility in the onshore yuan declined one basis point to 1.76 per cent.

This article appeared in the South China Morning Post print edition as Fixing lifts yuan near highest in 20 years